Lead Manager

SECTION 3
BUSINESS OVERVIEW
Financial summary 1
Year ended 31 December ($000) 2001A 2 2002A 2 2003A 2004F 2005F
Net Revenue
– Advisory 4,263 14,127 6,340
– Investment management 6,196 3,979 5,641
– Principal Investment 28,197 20,222 17,139
Net Revenue (996) 12,439 38,655 38,328 29,120
Operating costs 3 (7,899) (6,647) (6,932)
Operating profit before bonuses 30,757 31,681 22,188
NOTES
1.All amounts in foreign currencies for historical financial information in 2001-2003 and forecast financial information for 2004 and 2005 are translated at
constant exchange rates based on the rates assumed for the 2004 Forecasts. Prior to the Offer, the Group managed its activities with US dollars as its benchmark
currency. Historical financial information has been prepared from statements prepared in US dollars.The use of constant exchange rates, whilst not consistent
with Australian GAAP, has been adopted in the table above and in the Business Overviews in Section 3 of this Prospectus, as Babcock & Brown believes that
this basis provides a more meaningful insight into the activities and financial performance of Babcock & Brown given the prior practice of managing its
activities using the US dollar as its benchmark currency.
2. Babcock & Brown did not segment revenues or operating costs by Business Group prior to 2003.
3. Includes operating costs attributable to the segment and allocated corporate overhead costs.
Management discussion and analysis
Historicals
2003 compared with 2002
Net Revenue increased 211% from $12.4 million to $38.7 million driven principally by investment gains on
several of the Group’s holdings.
2002 compared with 2001
Net Revenue increased from a loss in 2001 to $12.4 million in 2002 in the Corporate Principal Investment
Group’s second full year of operation as a stand-alone Business Unit. 2002 revenues were driven by investment
gains, as well the share of profits from the Group’s stakes in various fund managers.The loss in 2001 was
principally the result of write-downs of non-Australian Internet investments.These activities have been
discontinued. In contrast, Australian activities generated Net Revenue of $5.1 million in 2001.
Forecasts
Forecast Net Revenue is assumed to be derived from both the realisation of existing investments and new
transactions generated during the Forecast Period. In addition, the business will continue to generate management
fees and other participation interests from its funds management investments.
It is important for potential investors to note that the Corporate Principal Investment business is still in an early
growth phase and its investment portfolio currently consists of a small number of concentrated positions.Although
Babcock & Brown believes that these investments will produce attractive returns for the Group’s shareholders and
co-investors alike in the medium-to-long term, the outcome and timing of sale of these investments and other fees
associated with them are more difficult to predict than for some of the Group’s other activities.
Furthermore, the Corporate Principal Investment Group has a highly opportunistic approach to investing. It is
consequently difficult to forecast the specific types of transactions in which the Group will deploy capital. However,
all transactions must meet the Group’s risk-adjusted return expectations before an investment will be made.
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